Hog Herd Could Be on Its Way to Expansion ?

For the last year, there's been some guarded optimism that the U.S. hog herd could be on its way to expansion. But, the sustained growth forecast in 2013 never really reached fruition by the year's end that industry-watchers saw coming.

Now, it's a new year and that growth that was cautiously predicted last year is underway and looks to continue well into 2014, says Purdue University Extension livestock economist Chris Hurt.

"Much lower costs of production will continue to be key to strong profit margins. From 2000 to 2006, the estimated total costs of raising hogs was about $36 per 100 live pounds," he says. "That reached a high on a calendar year basis of $67 in 2012."

Feed is cheap and demand -- both at home and overseas -- is fairly strong, and those 2 variables will likely continue for some time, strengthening pork's footing in the protein race against beef, chicken and turkey, Hurt says.

Overall, pork production is forecast to rise 4% by the latter half of this year, versus 3% and 2% increases in chicken and turkey production, respectively. Beef supplies, at the same time, are seen dropping 6% based on a smaller calf crop and heifer retention.

"Retail pork prices will be much lower than beef and will thus continue to pull some consumption away from beef at the retail counter," Hurt says. "USDA analysts expect pork export demand to increase by 4% and represent nearly 22% of total production."

Corn and soybean prices have been slammed in the last few months, and that's the main driver of the projected hog herd expansion. It's a reversal of a years-long trend, Hurt says, one that green-lights profits that were previously lingering around the breakeven point for the last year.

"Costs were estimated at $64 last year and are expected to average about $56 for the 2014 calendar year. Corn price was estimated near $6 a bushel for 2013 and is expected to drop to an estimated $4.45 in calendar 2014," he says. "High-protein soybean meal averaged about $440 a ton FOB plant last year dropping to an estimated $395 a ton in 2014."

Ultimately, these feed costs will usher in per-head profit levels beyond where they've been in the last 9 years. That will spawn further expansion through the later portion of the year, but could be trimmed slightly into fall and early 2015 as supplies balance with increasing prices.

"Profits for 2014 are estimated at $27 per head, the most profitable year since 2005 for pork producers. Profit margins are expected to narrow in the fall of 2014 and into 2015 as pork supplies increase," Hurt says. "However, returns still look to be profitable at least until the fall of 2015. This positive outlook should provide the foundation for additional expansion throughout 2014."